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Inventory Reduction
Recommendations 87 VI-13.1, 88
VI-13.2, 89 VI-13.3
These recommendations cover the
primary ways KPMG felt the District
could address its excessive inventory: reducing inventory by 25-50%;
implementing just-in-time delivery;
and reconsidering adding warehouse
space in a new parking facility. The
Task Force found that dead stock
(stock not used over a long period)
and non-essential inventory can and
should be eliminated, especially in
the maintenance area. However,
nothing in the findings or in the Task
Force review indicates that either a
25% or 50% reduction of all warehouse inventory is possible or desirable. In addition, KPMG appears to
have equated a reduction in inventory to a reduction in costs. This is not
true when dealing with dead stock
that is not regularly purchased. The
dead stock does not have labor costs.
The assertion that less inventory
equals less staff is also false. In fact,
moving the inventory more often
may require the same or higher
staffing levels.
Rather than arbitrarily reducing the
inventory by 50%, the District needs
to address the systemic causes of
excess inventory. One clear cause is
that the warehouse is viewed as
free by those who use it. This view
distorts cost comparisons against
outside vendors and other alterna-
The District should consider charging departments the full cost of warehouse services.
Ed Sheets
Inventory Management and
Purchasing Task Force, AISC
and President, Ed Sheets
Consulting
Credit (Return)
Policy
Recommendation 90 VI-14.1
The Task Force and the AISC found
that while the District has a written
credit policy, it should be strengthened to accurately cover the costs,
and clearly capture all existing return
practices. The Task Force disagreed
with the way KPMG calculated the
cost to return items, both in the percentage (41% of the inventory value)
and the amount of inventory returned
(a three-year average).
The Task Force discussed both a
restocking charge concept and a
retail concept where the cost is built
into the price. The positive aspect of
the restocking charge is that it discourages over-buying and is in-line
with other Task Force recommendations. The positive aspect of the
retail model is that there is less processing, thus avoiding spending more
in staff time than a restocking charge
provides for small purchases. The
Task Force believes the District
should look at both options and
select one based on net cost criteria
and incentives to save money.
Off-site Storage
Recommendation 91 VI-15.1
The Task Force did not find the
KPMG arguments of lack of access
to be compelling. Nor did the Task
Force think the spaces could be converted easily for use by people.
However, the Task Force recognized
that any building use has to fit within
an overall asset management plan.
The space at Marshall is appropriate
for long-term storage, as it is more
difficult to access. The Madison
storeroom is appropriate for shorterterm storage, as it is easier to get in
Purchasing Staff
Efficiency
Recommendation 92 VI-16.1
The Task Force did not find the
KPMG benchmarking method based
on the number of purchase orders to
be a compelling method for measuring efficiency, and so disagreed with
the finding that the staff could be
more efficient.
However, the Task Force agrees that
benchmarking performance is a good
thing to do and that efficiency is
important. The Task Force also
believes that this benchmarking
should be applied to the entire materials management system, and not
simply be applied to purchasing
staff.
The Task Force looked at other ways
to measure performance. The Task
Force initially chose to use one quick
benchmark that was simple to calculate with existing data: the dollar
value of requisitions per purchasing
staff person. Dollar value of requisitions was measured roughly by total
expenditures less personnel costs and
bond/other debt service. Purchasing
staff was defined as central materials management staff plus staff with
purchasing responsibility. These definitions were chosen to allow rapid
comparison across the districts
KPMG used for number of purchase
orders.
Michael Hutchens applied that formula to the past 3 years purchases,
with the following results: efficiency
rose 0.6%, 8.5%, and 15.6% respectively in the last three years. He also
called three other benchmark districts and found that he could not get
comparable data do to variations in
reported information and differences